Grant Thornton Indonesia's Update

Redenomination: For More Honourable Rupiah

Nowadays, while stepping into a money changer, will make we feel that we don’t bring enough money to change. For only USD1, we have to spend at least IDR13.000. It’s obviously different if we use Singapore dollar. It only needs no more than SGD2 to get USD1.

Indonesia rupiah looks out of pride if dealing with other foreign currency. Not to mention developed countries, even compared to other developing countries, Indonesia rupiah can’t have its chin up. When this article was written, Malaysian ringgit is still higher than rupiah. Pathetic?

Great news if the government of Indonesia will make redenomination implemented. What is redenomination? Will the economy be getting worse as in 1959 while devaluation was being on the rule?

Not Devaluation

Two words were already written upon, devaluation and redenomination. Not only spelling, the two words also have a very different meaning. Devaluation leaves a trauma in this country. Indonesia economy had been down due to the implementation of devaluation. So, what had devaluation been done to this country?

Indonesian people knew what happened in 1959 as Sanering, which is the other word of devaluation. The official exchange rate was devalued on 1 August 1959. The IDR500 and IDR1.000 were devalued 90% on 24 August 1959 to IDR50 and IDR100.

Panic attacked before the implementation. No one wants to own money of IDR500 and IDR1.000. The economy was getting worst. The devaluation was implemented for money, but not in the goods market. People didn’t afford to make a normal living anymore. All of their wealth had gone in just a blink of an eye.

The history recorded that devaluation had been implemented in Indonesia for three times which was in 1950, 1959, and 1965. That time, Indonesia rupiah was no longer reflecting the real value, so devaluation is inevitable, and left unforgettable trauma.

No wonder, when Indonesian government is going to eliminate some digit from rupiah, everyone makes a sound of rejection. Their mind is fear of being in the same situation as before.

Redenomination is not sanering, or devaluation. Redenomination more focuses on currency simplification. The difference is the simplification will be applied to goods prices as well.

For example, if eggs were sold at IDR15.000/kilogram when IDR1.000 becomes IDR1, people can buy eggs only IDR15/kilogram. Everything will be the same. Everyone still can have the normal living as before the redenomination implemented. No need to worry at all.

The Honourable Indonesia Rupiah

Indonesia was known as the second highest notes of currency in South East Asia, which is IDR100.000. Meanwhile, Zimbabwe is the first position in the world who has the highest notes of currency, which is 500.000.

The more digits in the currency, clearly have a high risk of error in the process of transactions. Every counting tools also have certain limitations of numbers. Easier if the number is simpler. Seems nothing, but it should be noticed.

Not to mention the greater impact. When redenomination, which rupiah will be three zero simplify, it will turn the position to USD. It will be 1 compared to 13, not 13.000. Carrying IDR100.000 will be much more valuable than now. So, let’s welcome redenomination!